Treasury officials said last week that the agency is still working on more guidance aimed at stemming the flow of U.S. companies merging with foreign companies and reorganizing as foreign entities.
The IRS first addressed the issue on Sep. 22 with Notice 2014-52. The guidance tightens the rules under Section 7874, which generally prevent a U.S. company from being treated as foreign entity after a merger in which the foreign shareholders own less than 20% of the new company. The guidance also makes post-inversion planning more difficult, but it does not directly attack earnings stripping.
Treasury officials said last week that they are working on further guidance to curb earnings stripping by limiting interest deductions for intragroup loans under Section 163(j) and tightening the rules on the characterization of debt versus equity under Section 385.
Treasury officials indicated that the next round of guidance is likely to apply to future transactions, but would also apply to inversions that took place after the Sept. 22 effective date of Notice 2014-52.
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